Warning sign? High leverage ratio for Bitcoin on 4 exchanges

On January 12, Martin, an on-chain community analyst at CryptoQuant, Issued An important note of caution when he posted on X, “Estimated Leverage Ratio Rises on 4 Major Exchanges.” The exchanges highlighted in his analysis — Gate.io, Bybit, HTX Global, and Deribit — showed significantly higher levels of estimated leverage ratio (ELR), a metric described as open interest in Bitcoin futures divided by exchange reserves. According to Marton, this rise may indicate an “overheated futures market” or “unusually low exchange reserves.”

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Gate.io is the first exchange to show a worrying rise in ELR, driven by a notable increase in open interest. Data shared by Maartunn indicates that open interest rose from approximately $1.5 billion to $6.4 billion in just 30 days. Historical patterns indicate that Gate.io regularly displays high ELR numbers between November 2021 and October 2022, covering the period from Bitcoin’s record peak to the depths of 2022. Bear marketat which point the scale finally stabilized. This stability now appears to have reversed, raising questions about renewed risk-taking on the platform.

Bybit is also noteworthy and has long stood out for consistently maintaining an ELR above 1 for more than two years in a row. In his remarks, Martin referred to what he calls “paybit monkeys,” a term that describes traders who gravitate toward high leverage. Such behavior, although familiar to Bybit’s user base, increases the risk of sudden and sharp fluctuations in the price of Bitcoin.

HTX GlobalPreviously, Huobi also saw a rapid jump in open interest, rising from about $150 million to $3 billion in less than a year. Although this number indicates an increase in the platform’s popularity in general, it has not been matched by a similar increase in exchange reserves, which Martin described as “strange.” He points out that without a parallel accumulation of reserves – whether in Bitcoin or stablecoins – increased leverage may signal a greater imbalance.

Deribit, the fourth exchange in focus, showed a spike that Maartunn considers less significant, given what he believes could be an unnamed internal address skewing ELR data. While the exchange is known for its robust options market, he points out that the high values ​​do not appear to stem from the same high-leverage trading behaviors prevalent at Gate.io, Bybit, or HTX Global.

Martin emphasizes that the intention behind his analysis is not to create fear, uncertainty and doubt, but rather to provide data that can guide wise decision-making. “Initially, it’s not about posting FUD – I’m simply sharing data and insights for you to consider. Use this information to guide your decisions,” he said, noting the lessons many in the cryptocurrency community learned afterward. FTX breakdown.

He also explains that it may be prudent to minimize funds stored on exchanges due to potential counterparty risk, advises caution when engaging in leveraged trades – especially when ELR values ​​are high – and recommends favoring exchanges such as Binance, BitMEX, Kraken, Bitfinex, and… OKX, which is currently showing healthier ELR numbers.

At press time, Bitcoin was trading at $90,768.

Featured image created with DALL.E, a chart from TradingView.com